Reasons Why Your Mortgage Application May Be Declined

by Caleb James on 15 Aug, 2012

Applying for a mortgage may seem straight forward enough, but there are many factors that are taken into account when your mortgage application is reviewed by your bank or building society. If you are thinking of applying for a mortgage in the near future, then there are a few simple things you can do to increase the chances of your mortgage application being approved.

Credit File Check

It is important to check your credit file before applying for a mortgage. You can get a free basic credit report from noddle.co.uk – look for anything unusual which may indicate some form of ID fraud, incorrect links to neighbours or former partners. Remember, if you are rejected by one bank or Building Society, this will reflect on your credit file and will make it more likely that a subsequent lender will decline your application as well. It is therefore important that you take 10 minutes to perform a free credit file check yourself before applying for a mortgage.

Credit Cards & Loans

It goes without saying that a bank or Building Society will be able to see how much credit you have and your payment history related to those products. In theory a credit file search can show up to 6 years of payment history, but it is more likely that a mortgage lender will check the last 2 years of your payment history.

If you have fallen more than 2 months behind with your payments at any point in the last year, then it may be worth postponing your application until the credit card or loan has been up to date with payments for at least a year. You can always ask your mortgage advisor or bank if this will be a problem before you apply; they should be knowledgeable about specific lending criteria.

When applying for a mortgage, you will also be asked how much credit you have and how much your repayments per month are. Lenders will want this information to roughly calculate your disposable income and to ascertain whether or not you are potentially ‘over-committed’ with credit.

No Payment or Credit History

Lenders will be looking to assess not only how much credit you have, but how well you have managed and maintained credit in the past. If you have never had a credit card or loan, and have no credit history, it is difficult for a lender to assess how competent you are at making monthly payments and keeping up to date with your bills. If you are thinking of applying for a mortgage in the future, it may therefore be sensible to apply for a credit card first. Make sure that you pay off the full balance every month to avoid interest charges and/or set up a standing order from your bank to cover the minimum payment. Make sure this is set up in time to cover your first payment.

Employment Gaps

Lenders want to see financial stability. This can be demonstrated with regular payments to credit cards and/or loans, a high amount of disposable income and a consistent employment history. If you have been unemployed within the last 2 years, then unfortunately you may have to delay your mortgage application. Again, this is something that a Mortgage Advisor should discuss with you. Different lenders will have different underwriting criteria and a Mortgage Advisor should be aware of your probability of still being approved for a mortgage.

Insufficient Information Supplied on the Application Form

If you omit information on an application, a lender will have to assume that you have done this in an effort to hide negative and adverse details which would damage your chances of being approved. Be honest with your information and if you do need to disclose unemployment or adverse credit history then speak to a Mortgage Advisor and do some research online before applying. Remember some Mortgage Advisors don’t charge a fee but get commission for selling or recommending particular products.

About the Author

Caleb James


Caleb James is a financial advisor and journalist, who contributes regularly to financial blogs and industry publications.